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Federal employees and members of the United States armed forces may invest in the Thrift Savings Plan. For civilians, these accounts are tax-deferred, and withdrawals in retirement are taxed as ordinary income. For members of the military assigned to combat zones, contributions are tax-exempt, and withdrawals after retirement are tax-free. For the TSP, the terms tax-exempt and tax-deferred refer to the account owner's status, not the actual investments.

Thrift Savings Plans

The TSP, part of the Federal Employees' Retirement System Act passed by Congress in 1986, offers federal workers and military personnel similar retirement options as private sector employees receive in a 401(k) plan. As a defined contribution plan, the retirement income received by TSP participants depends on how much each person contributed to the account, as well as matching contributions by the particular agency. Only federal employees receive matching contributions, not members of the military.

Military Personnel

Military personnel may contribute from 1 percent to all of any bonus, incentive or special pay to the TSP account, as long as contributions are already being made from basic pay. While most military personnel contributions are tax-deferred, those members of the armed forces serving in a combat zone, whose pay is already tax-exempt, also make tax-exempt TSP contributions. Any tax-exempt contributions cannot exceed the total contributions for that particular year. Catch-up contributions can only be made from basic pay, not tax-exempt, special, bonus or incentive pay.

Federal Personnel

Federal employees automatically begin contributing to a TSP account upon beginning work, unless the employee specifically decides not to contribute. These employees also participate in the Federal Employees Retirement System. Federal employees hired after July 31, 2010, have 3 percent of pay is deducted from every paycheck into the TSP account, and each government agency contributes 1 percent of pay. The agency also contributes 3 percent in Agency Matching Contributions. If hired before August 1, 2010, the TSP receives 1 percent equivalent pay contributions from the individual agency. His agency contributes up to 5 percent in matches if the TSP account owner contributes his own money to the TSP. If leaving federal employment, the TSP may be rolled over into a qualified retirement plan.

TSP Investments

At the time of publication, the TSP offers various index funds managed by BlackRock Institutional Trust Company, overseen by the comptroller of the currency. It also offers a riskj-free guaranteed fund named the G Fund, which invests only in U.S. Treasuries. This fund is managed by the Federal Retirement Thrift Investment Board. Participants may also choose between the C, F, I and S index funds. The L fund was retired in 2010 and is not available to new TSP account holders. The lettered funds operate like indexed mutual funds, tracking a particular type of stock index such as the S&P 500.

About the Author

Jane Meggitt has been a writer for more than 20 years. In addition to reporting for a major newspaper chain, she has been published in "Horse News," "Suburban Classic," "Hoof Beats," "Equine Journal" and other publications. She has a Bachelor of Arts in English from New York University and an Associate of Arts from the American Academy of Dramatics Arts, New York City.